One of these citizenships is not like the other...

January 3, 2013 8:13 AM

My friend, a dual Canadian/American citizen living in the UK, is discussing the terms of a trust with her (US) father. By the time she inherits, she may have given up US citizenship. Does this need to be mentioned so they can account for it now?

Added info, from her:
--I'm pretty sure the letter I get every year says that it's an irrevocable trust, so I'm not sure the trust can be rewritten.
--Dr. Internet is being unhelpful to me: it's telling me a lot about what happens if a non-US citizen spouse inherits, but children have different legal standing.
--I would keep Canadian citizenship.
--If me being a non-US citizen would be a huge PITA, then I'd much prefer he just rewrite the trust so it all goes to my sister.

Thanks (on behalf of both of us)!

posted by Madamina to Law & Government (15 answers total)

This is absolutely something you need to speak with a qualified CPA and/or attorney about (i.e. not some guy at H&R Block or Fred's Storefront Law Firm.) Trusts are complicated enough on their own, but when you throw matters of citizenship into it, you absolutely need someone who knows what they are doing. Who established this trust, and who is managing it? That person ought to have the proper connections.
posted by griphus at 8:19 AM on January 3, 2013 [1 favorite]

It's really hard to renounce U.S. citizenship; it's not like you just burn your U.S. passport and you're done. And if you even faintly look like you might be doing it for financial reasons (to avoid taxes, say), the U.S. government won't let you.

Seconding finding an experienced financial adviser/lawyer for advice about this.
posted by rtha at 8:21 AM on January 3, 2013 [3 favorites]

IAAL, IANYL (or your friend's lawyer)

No one is going to give your friend advice about a trust instrument that they haven't read.

If this is a concern in your friend's mind, she needs to share it with her father so he can share it with the attorney(s) involved in drafting the trust instrument and administering the trust.

By the way, it is pretty hard to give up US citizenship. There are cases of people thinking that they really and truly gave up their US citizenship but later found out that they are still US citizens. Unless there is a compelling need for her to abandon the US citizenship, she may as well keep it. People usually give it up for tax reasons, so maybe that is the issue, and that is the reason why it is so hard to give up. (and such renunciations are receiving heightened scrutiny these days - I will leave it to you to guess why)
posted by Tanizaki at 8:22 AM on January 3, 2013

Your friend needs to speak to a lawyer familiar with trusts and how expatriate citizens are affected by them.

This is most likely a lawyer located in the United States, though there may be American lawyers in London who can help.

Answers-via-the-internet are not reliable for this type of thing.
posted by dfriedman at 8:25 AM on January 3, 2013

Nthing talking to a professional. Also, as someone who's related to a dual US/Cdn citizen going through the hell of retroactive double-taxation on Canadian-earned income, also inquire about tax implications of keeping your US citizenship and way to renounce it. Unless there's something preventing you from renouncing your US citizenship, I'd recommend doing it.
posted by Kurichina at 8:28 AM on January 3, 2013

Response by poster: I absolutely agree that this is not an Ask Internet, Esquire question. But I think one of the main issues is that it's difficult for her to see the path to take when asking about these things.

Should she be asking a UK-based lawyer/solicitor? Should she be asking a US-based lawyer who advocates for her and is not currently affiliated with the trust? Can she call the administering firm herself?

She has questions that might be a little complicated/sensitive to ask her father directly. (Nothing too crazy, but you know how it goes when you combine subjects you're unsure about with trying not to offend someone, even with theoreticals.)
posted by Madamina at 8:29 AM on January 3, 2013

The trust is based in the US, and she's the variable, so she'll need to speak to someone intimately familiar with the relevant US financial laws and whatever aspect of US immigration law is relevant here. I don't see why she couldn't call the administering firm; they have a vested interest in making sure everything goes smoothly and probably know more reliable lawyers and CPAs than you can find in the phonebook.
posted by griphus at 8:36 AM on January 3, 2013 [3 favorites]

In response to your follow-up, first, she needs a copy of the trust instrument. No one is going to talk to her without it. Then, she needs to talk to a US lawyer who practices trust/estate law in that state. In the US, trusts are governed by state statute, so she will at least need to talk to a lawyer in the relevant state. An Illinois lawyer can't tell you about a Nevada trust. As I said in my first comment, I suggest that she speak with the lawyer(s) who drafted the trust instrument and administrate the trust.

And, she needs to get over the sensitivity and discuss it with her father, whom I presume is the settlor and/or trustee of the trust. There are important and serious consequences of tax and other matters at issue with trusts. That's why people make them in the first place. Are "complicated questions" worth tens of thousands? (or maybe more?)

And, to expand upon what I and others wrote regarding giving up US citizenship, there are big-time tax consequences for that. There is an exit tax and tax consequences for her heirs.

Still NYL (or your friend's lawyer)
posted by Tanizaki at 8:41 AM on January 3, 2013

I agree with going to the firm that administers the trust. They will want to know any relevant information anyway.
posted by BibiRose at 8:44 AM on January 3, 2013

I'd go with the attorney rather than the CPA. Trusts are actually a creature of state law, so you're going to need to discuss this with a licensed attorney in the father's state, ideally one with a large estate practice. That attorney is going to need to see a copy of the trust instrument. It may be most convenient for this to happen with the attorney that created the trust. I'd recommend getting her father into their office and then having your friend call in so that the three of them can discuss things.

Note that irrevocable trusts generally can be reworked. It just requires the permission of the beneficiary to do so. So if it would be more convenient for your friend to have this thing redone, and her father is game, there's no obvious reason why that couldn't be made to happen.

Note also that you can renounce US citizenship, provided you've got somewhere else to be, and the federal government can't stop you as long as it's done properly.* What happens is that the IRS imposes absolutely punitive tax consequences if thinks even look funny. I.e., assess income tax against your entire net worth as if it were realized as income in the year of the renunciation and then require you to pay income taxes for the next ten years even if you wouldn't otherwise have had to. Also, you basically become permanently ineligible for US citizenship forever. This is obviously something that's going to need to be discussed very carefully with an immigration lawyer independent of the estate issues.

*Doing it properly isn't trivial, but it's not terribly burdensome either. You basically have to demonstrate that you've got another country willing to take you, make the renunciation before the appropriate official, etc.
posted by valkyryn at 8:44 AM on January 3, 2013

Response by poster: She does know how to renounce citizenship properly, yes.
posted by Madamina at 8:51 AM on January 3, 2013

But does she know all of the tax consequences for doing so? I'd doubt she does unless she's already consulted with a professional on the subject.
posted by valkyryn at 8:54 AM on January 3, 2013 [1 favorite]

Standard forms of generational asset transfer trusts, gifts, and wills in the US are not drawn up with foreign beneficiaries in mind, to say the least of beneficiaries with plans to expatriate US citizenship. I'd start with a lawyer who is very skilled with expatriation, and allow him to bring in his trusts and estates colleagues and filter their advice through your friends' situation and plans. It would only be by unusual luck that her father's law firm has an expatriation expert. Expect to pay at least $500 an hour for the advice of such an expert, by the way. Anyone who charges less probably doesn't know what he is doing. Expect that the whole program of research and modification could cost your friend and her father $50k to $100k.
posted by MattD at 8:57 AM on January 3, 2013 [1 favorite]

To chime in on what valkyryn and MattD said, I would recommend that your friend have a superb reason for expatriation because it is going to be a major expense in taxes alone. This would be the case even if there were no trust considerations. There are a few exceptions to this, such as those who have US citizenship by birth but have no personal connection to the US e.g. have never been, lived, or worked there, but I do not get that impression from your question that this is your friend's case.
posted by Tanizaki at 10:05 AM on January 3, 2013

I think that the $50k-100k figure seems a bit high. Shop around.
posted by valkyryn at 1:14 PM on January 3, 2013